Social responsible investment, decent work and pension funds
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relationship between ESG factors and portfolio performance, seven reported a neutral effect and three a negative association” UNEP FI; Mercer, 2007, p. 7. In a more recent
report, Mercer reviewed 16 academic studies, of which “10 showed evidence of a positive relationship between ESG factors and financial performance; two found evidence of a
negative-neutral relationship; and four reported a neutral association” Mercer, 2009, p. 2.
In a study of exceptional scope, Eccles, Ioannou and Serafeim tracked the performance of 180 companies over 18 years, in order to “delve into the crucial performance implications
of a corporate culture of sustainability.” Ninety of those companies were identified as “High Sustainability companies”: “with a substantial number of environmental and social
policies that have been adopted for a significant number of years since the early to mid- 1990s which reflect policy and strategy choices that are independent and, in fact, far
preceded the current hype around sustainability issues.”Eccles; Ionnaou; Serafeim, 2011. The other ninety companies were deemed to be “Low Sustainability companies”:
comparable firms that have adopted almost none of these policies. The main question of this study was whether firms in the High Sustainability group would under or outperform
their counterparts in the Low Sustainability group. The idea behind this question was that “firms in the High Sustainability group might outperform traditional firms because they are
able to attract better human capital, establish more reliable supply chains, avoid conflicts and costly controversies with nearby communities i.e., maintain their license to operate,
and engage in more product and process innovations in order to be competitive under the constraints that the corporate culture places on the organization” ibid.. The figures in
Appendix V show the cumulative stock market performance of both value-weighted and equal-weighted portfolios in the two groups. “Both figures document that firms in the High
Sustainability group significantly outperform firms in the Low Sustainability group. Investing 1 in the beginning of 1993 in a value-weighted equal-weighted portfolio of
sustainable firms would have grown to 22.6 14.3 by the end of 2010, based on market prices. In contrast, investing 1 in the beginning of 1993 in a value-weighted equal-
weighted portfolio of traditional firms would have only grown to 15.4 11.7 by the end of 2010” ibid..
In parallel with financial performance, it appears that the financial sector also considers SRI as a matter of risk management. Taking sustainability and ethical risk into account
“can improve an investor’s understanding of financial risks and its capacity to deal with these risks” Eurosif, 2011. This aspect of risk is central in the SRI strategies that are
used, as will be seen below.
2.4. Public attention
In recent years, NGOs, media and individuals have increasingly focused their attention on the impact of financial institutions’ investments. The possibility of reputational risk has
therefore also increased. That is why many investors, in order to avoid damage to their own reputation, have realized that “they have to avoid investments that are publicly
perceived as socially unacceptable or irresponsible” ibid.
Reputational risk seems to be a major issue for pension funds. According to a survey conducted by Allianz Global Investors among pension experts in France, Germany, Italy,
the Netherlands Switzerland, and the United Kingdom, public opinion “is considered to be the single most important factor driving SRI 78 on average” Alliance Global
Investors, 2010, p. 14. Of course, addressing this kind of risk is key to investors. “The avoidance of environmental and social risks can reduce the client’s reputational risk and its
exposure to claims for damage” Eurosif, 2011, p. 10.
According to the “Pension Programme SRI Toolkit” published by Eurosif 2004-05, companies and investors increasingly acknowledge reputational risk. Some of the Toolkit’s
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Social responsible investment, decent work and pension funds
key aspects are: “Government’s decisions to grant operating license; consumer decisions to buy products, 3 job-seekers’ decisions to apply at a company; and impact of a CGSEE
event on share price” Eurosif, 2004-05, p. 9.
For these reasons, it may be concluded that refraining from investing in companies that are likely to give the institution a bad press is a responsible investment practice. It is therefore
important to take into account this aspect of “public attention” when establishing a SRI strategy.
In this context, it is relevant to refer to the specific role of the labour movement, and particularly that of trustees representing workers on pension fund boards. It should also be
recalled that the appointment of worker trustees, or the granting of equivalent influence to workers and employers, is a requirement of ILO standards, which build upon the principle
of social dialogue and tripartism or bipartism.
6
One of the historic goals of the labour movement has been to address the fundamental inequalities that run through society and
economy. “By the late 1970s, unions began to show an increased interest in how pension funds were being invested” Quarter et al., 2001, p. 94. Unions have therefore played a
crucial role in the advancement of socially responsible investment amongst pension funds. “Growing awareness and interest […] for example from labour and pension funds [is] a
result of increased education of union pension fund trustees regarding the potential to achieve risk-adjusted, non-concessionary rates of return from community investment and
the allocation of resources within the labour movement to support economically targeted investment, investments which fill capital gaps in the economy, deliver risk-adjusted rates
of return and provide collateral benefits to stakeholders” Strandberg, 2005, p. 20. This clearly explains why the labour movement as a whole is very concerned about SRI issues,
as they give workers a voice in the capital markets - enabling them to lead initiatives on matters such as corporate governance or executive compensation and to advocate for
legislative and regulatory reform through capital stewardship programmes. The labour movement has its say on the way pension funds manage their investments – in particular
through labour trustees on pension funds’ boards. It is therefore crucial to take into account this specific stakeholder’s point of view.
2.5. Universal ownership
